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Economics
Spring 2016
From Hard Money to Branch Banking California
Banking in the Gold Rush Economy
Larry Schweikart
University of Dayton
Lynne Pierson Doti
Chapman University, [email protected]
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Recommended Citation
Schweikart, L., & Doti, L. P. (2016). From hard money to branch banking. California History, 93(1), 26–44. http://doi.org/10.1525/
ch.2016.93.1.26
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From Hard Money to Branch Banking California Banking in the Gold
Rush Economy
Comments
This article was originally published in California History, volume 93, issue 1, in 2016. DOI: 10.1525/
CH.2016.93.1.26
Copyright
© 2016 by the Regents of the University of California. All rights reserved. Please direct all requests for
permission to photocopy or reproduce article content through the University of California Press’s Reprints
and Permissions web page, http://www.ucpress.edu/journals.php?p=reprints.
This article is available at Chapman University Digital Commons: http://digitalcommons.chapman.edu/economics_articles/185
L A R R Y S C H W E I K A R T A N D L YN N E P IE RSON DOT I
From Hard Money to Branch
Banking
California Banking in the Gold Rush Economy
Originally published in California History Vol. 77, no. 4 (Winter, 1998/1999)
ABSTRACT In Gold Rush–era California, banking and the financial sector evolved in often distinctive ways
because of the Gold Rush economy. More importantly, the abundance of gold on the West Coast provided
an interesting test case for some of the critical economic arguments of the day, especially for those deriving
from the descending—but still powerful—positions of the “hard money” Jacksonians. KEYWORDS: Gold
Rush, Banking, California Financial Sector
I
AMERICANS associate any event with the early history of California, it is the Gold Rush.
While the impressions of most people are that the Gold Rush “came and went,” more or
less, with little lasting legacy other than to alert outsiders to the vast wealth to be found in
California, the economic development of the state actually took on much of its early form
based on the experiences of the forty-niners. Banking and the financial sector, in particular,
evolved in often distinctive ways because of the Gold Rush economy. More importantly, the
abundance of gold on the West Coast provided an interesting test case for some of the critical
economic arguments of the day, especially for those deriving from the descending—but still
powerful—positions of the “hard money” Jacksonians.1
By the time banks appeared in California, commercial banking was well established east of
the Mississippi, and had made inroads in Missouri.2 The process by which banks came into
existence was common, but not uniform: usually a merchant or freight agent would accept
deposits from local entrepreneurs who wanted safe storage for their money or gold, exchange
drafts written from out-of-town companies and pay out gold, and extend credit to valued customers. The combination of accepting deposits, exchanging drafts, and making loans endowed these merchants with the essential functions of banks. When their business equaled
or surpassed their mercantile or freight activities, these merchants often sought a banking
F
California History, Vol. 93, Number 1, pp. 26–44, ISSN 0162-2897, electronic ISSN 2327-1485. © 2016 by the Regents of the
University of California. All rights reserved. Please direct all requests for permission to photocopy or reproduce article content
through the University of California Press’s Reprints and Permissions web page, http://www.ucpress.edu/journals.php?p=reprints.
DOI: 10.1525/CH.2016.93.1.26.
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charter from the state legislature, although not all “bankers” had charters. The charter usually
empowered the banker to issue paper money, called “banknotes” or simply “notes.” Money
thus circulated, and competed, against other privately issued money by relying on gold as a
standard of measurement, since all notes had to be convertible into gold at some point. More
often than not, however, the real determinant of a note’s value rested on its reputation—or,
more precisely, that of its issuer—and many banks reflected the apparently paradoxical condition of having low reserves of gold and yet high levels of soundness and solvency. Of course,
that paradox is understandable if one keeps in mind that instability was related to a weak
reputation more than to low reserves of gold.3
When banking arrived in California, the debate over whether banks should be prohibited
from issuing notes at all was decided in favor of the private note. The Panic of 1837 had made
several states hostile to banks, with Arkansas and Wisconsin actually prohibiting banks altogether (as Texas later would do). Of course, note-issuing banks still appeared, generally under the inventive title of “Marine and Fire Insurance and Banking Company” or “Railroad
A row of solid brick banks lines the west side of Montgomery Street in a charming watercolor executed in the
early spring of 1851 by an unidentified French artist. Visible, left to right, are the offices of the San Francisco
Savings Bank, E. Delessert & Cordier, James King of William, and, across Commercial Street, the bank
of B. Davidson, agent for Messrs. Rothschild. The concentration of so many financial institutions had, the
previous year, led a newspaper to declare that “this beautiful street may well be called the Wall Street of
San Francisco.”
California Historical Society, CHS2016_2071
CALIFORNIA HISTORY
27
and Banking Company.” Governments found they could not eliminate the demand for
banks—or paper money—and often, “bankless” states, such as Iowa in the 1850s, found that
the business they lost to neighboring states caused them to rethink their inflexible positions.4
California, therefore, had by 1849 plenty of evidence about what worked and what did not
work when it came to bank structure. Yet none of the banks in other states had the key ingredient that California possessed: abundant gold, capable of sustaining a metallic currency.
The discovery of gold on January 24, 1848, at a mill owned by John A. Sutter sparked a
stampede to the mines of northern California. Likened to a “hysteria” or to a dam bursting,
the Gold Rush brought in thousands of people from everywhere in the world, and with them
came a new outlook on life: Mark Twain facetiously reported haircuts going for $1,000, and
yet people “happily paid it, knowing that we would make it up tomorrow.”5 Gold poured out
of the mines and streams in amounts large enough to run any economy, and indeed, “if a
metallic-based economy could survive anywhere, if metallism, as the Jacksonians preached,
was a desirable alternative to banks and paper money, then it should have taken root . . . in
California.”6 According to the Jacksonian principles of banking, there should have been little
need for bankers, the much-disparaged “middlemen.” Instead, the California experience
demonstrated the critical role that financial intermediaries play in evolving market systems,
even when a suitable “money” is widely available.
Prior to the Mexican-American War in 1846, California lacked banks altogether and
had a chronic shortage of paper currency and minted coin. Indians had devised the earliest common currency of the state, meticulously carved round pieces of shell with holes in
the center so the “coins” could be strung on long leather thongs to create an early wallet.
When the Spaniards arrived and began trade, the strings of coin traded at the rate of a
yard to a Spanish dollar. Still, from the founding of the first mission in San Diego in
1769 until Mexican independence in 1821, most trading was by barter. As the missions
were closed by the Mexican government after 1833, the economy focused on a few hundred large cattle ranches. These ranchos were basically self-sufficient empires with little
need for banks or money. Cowhides—dry, flat, and stiff enough to sail like Frisbees off a
cliff—were known as “California dollars.”7 Tallow, hides, and furs, classed under the
general moniker “firm money,” had been a constant in the frontier fir-trading areas from
the Mississippi to the Rockies, and the Bank of Saint Louis, on the main route east from
the trapping grounds, accepted pelts and issued money on that security.8 California cattle
hides, also called “California Bank Notes,” circulated as a popular form of early money.9 As
an example, Captain William Davis of the USS Eagle recorded a transaction in which he sold
some goods to Friar Mercado of the Santa Clara Mission in 1844 and received two hundred
hides.10 Despite the obvious fact that a skin-based currency demanded little in the way of
safes or vaults, Davis claimed himself as the one to have brought the first safe to California
in 1846.11
After the state was abruptly wrested from the control of Mexico by the war in 1846, the
American population slowly increased. Settlers following the Oregon Trail to the Northwest
veered south to find the fabled lush and massive Central Valley between the mountains and
the coast. Soldiers passing through Monterey, San Diego, and inland long after remembered
the ideal climate and the vast amount of empty land. Some returned, and some influenced
others to settle in California. The economy began to develop markets as many of the ranchos
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were subdivided and the smaller landholders were less self-sufficient, and these markets
created a need for money. American dollars brought by settlers became the most common,
though still rare, money.
As elsewhere in the West, the local residents expressed more of a concern about the scarcity of currency and coin than about the absence of banks. As two historians of the subject
concluded, the “cry ‘There is no money in Kansas’ might well have described the situation
in neighboring plains states as well,” and also in California, at least before the discovery of
gold.12 Of course, everything changed when James Marshall, on January 24, 1848, presented
a sample of ore from the South Fork of the American River to John Sutter, a Swiss-born
adventurer who had hired a group of Mormons to construct a sawmill for him. Quickly, the
California economy was changed: by summer, reports of gold had drawn hundreds of people
from other parts of California to the region, and then, as news of the discovery spread,
thousands of prospectors and miners arrived at San Francisco, from which they would take
boats up the Sacramento River, then walk uphill to the goldfields some forty miles from
Sacramento. There, they found gold in impressive—indeed, absolutely phenomenal—
amounts. Between 1848 and 1860, according to one estimate, gold exports from California
topped $650 million, at $16 an ounce.13
San Francisco reflected the boom in its population, which had stood at barely 150 in 1846,
only to swell to 50,000 a decade later. Each new immigrant seemed to add to the news traveling back home that anyone could get rich in California, and regular reports by field agents
of express companies, such as William Rochester of American Express in 1851, contributed
to the excitement. That year, gold production rose from $41 million to $76 million, leading
one resident to comment, “Gold never was known so plenty in San Francisco as this
season.”14 Yet despite the abundance of gold, the United States did not open a mint in
San Francisco until 1854, so the scarcity of coin persisted amid an ocean of gold. All customs
had to be paid in U.S. coin, which led to hoarding of the few pieces of metallic currency that
existed.15
Using gold ore or dust for daily business transactions proved difficult because the measurement and valuation of gold in such forms constituted an inexact science, even for the
experienced. Gold as it came from the mines was rarely pure. Even nuggets could contain
spots of other metals or dirt, and the more common “dust” really consisted of several materials mixed together. Dealers usually weighed the dust to ascertain value, and an experienced
assayer prided himself on his ability to determine by color exactly where a particular batch of
gold had been found.
The difficulty of determining the purity of gold as it came from the mines was only the
first problem of using gold as money. Since value depended on weight, every party to a transaction wanted scales. Not only did a miner on a shopping trip have concerns about carrying
his leather pouch of gold along, but he had to bear a second pouch containing a miniature set
of scales and weights. Differences in calibration between buyers’ and sellers’ scales placed
a premium on negotiation skills. No wonder at least two dozen private mints operated in
California.16 Those mints charged customers to refine their gold and exchange it for coins
stamped with the mint’s verification of weight and purity. Miners worried about protecting
their gold, too, after it was mined and especially when they were in town for their nights out
after replenishing their supplies.
CALIFORNIA HISTORY
29
An advertisement from the San Francisco Business Directory of 1856 for Kellogg & Humbert,
located at 104 Montgomery Street. In addition to providing assaying services, the firm produced
gold bars and operated a private mint.
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A dependence on metallic money presented another problem for miners and merchants
in California. At first, there were no local sources of mining equipment. Clothing, blankets,
flour, and whiskey all had to come from the East Coast or another distant location. To restock
the stores, someone had to travel back with the gold to make the purchases. Many miners
also wanted to send payments back east or out of the country to families left behind.
Valuing, transporting, and safely storing gold all contributed to stimulating early banking
functions in California. But identifying the “first bank” in California involves determining
which of several banking functions or services an individual or business provided—not an
easy task, considering that many of the early merchants and entrepreneurs performed most
banking functions at one time or another, but seldom all functions at the same time. As late
as 1847, of the 169 men who provided their occupations for a newspaper article, none listed
themselves as bankers. Robert A. Parker, who later established the Parker House Hotel, was
possibly San Francisco’s first banker, conducting primitive banking operations from his
store on Dupont Street in 1848.17 Other firms, like Mellus, Howard & Co. and B. R. Buckalew
in San Francisco and Dickson and Hay in Sacramento, soon advertised themselves as “gold
dealers,” but undoubtedly exchanged drafts and took deposits, too.18
The early gold dealers had provided drafts or exchange for gold, giving the prospectors a
liquid and divisible medium for a less liquid and less divisible metal, or for notes from other
regions that were less well known, and, therefore, less reliable. Dealers purchased gold at
$8 to $16 an ounce and sold it on the East Coast for $18 an ounce. This operation allowed
merchants and miners to pay local dealers in gold, and get drafts that could be more cheaply
and easily transported to pay suppliers or family. Gold dealers then shipped gold in large
shipments for sale on the East Coast. Bringing money from outside California was more of
a problem, since gold or gold-backed paper was the only locally accepted money. Exchanging
local paper for out-of-town notes (called “foreign” notes, even if they originated in another
California town) carried a fee—a “discount” based on distance and risk—to redeem the draft
or note. An early advertisement for C. V. Gillespie, a San Francisco merchant, read “Wanted:
Gold Dust at a high rate of interest for which approved security is offered,” and touted loans
“negotiated in Gold Dust for both long and short time, interest payable monthly, quarterly, or
with the principal at maturity of engagement.”19
Companies that shipped gold also soon found themselves in the exchange business.
Adams & Co., one of the first important express companies in California, became one of the
major exchange dealers prior to 1855. Likewise, in Stockton, C. M. Weber, who started the
town’s first express company, had built a vault and obtained a safe in 1851 for the purpose of
accepting packets for storage.20 Wells Fargo, initially in the express business and eventually
also in the stage business, entered banking in California in July 1852, when it first issued certificates of exchange.21 Familiar with the uncertainties of early transportation, Wells Fargo
sent three copies with different carriers between remitters and receivers in the East and
West, with the first certificate received recorded as the official transaction and paid, and the
others treated as void if and when they arrived. The banking services at Wells Fargo had
grown so important by 1852 that an advertisement in the San Francisco Business Directory
only mentioned the express business in tiny letters, while below it, a huge headline proclaimed “Bankers and Exchange Dealers.”22 Wells Fargo’s banking operations grew so fast
CALIFORNIA HISTORY
31
that by 1855 the company had expanded its services to Sacramento, Stockton, and Portland,
and when Wells Fargo opened its office in Los Angeles, its capital reached $1 million.23
A final breeding ground for early banks was the general store or merchant. Most
merchants allowed reliable customers to “run a tab”—an early form of credit extension—and
many already had safes to protect their own daily cash balances. It did not take long for
merchants to offer space in their safes for valuables or cash, giving the depositor a receipt,
which still other merchants honored or discounted against. In 1848, one such merchant,
Darius Ogden (D. O.) Mills, left a budding career as a bank clerk in New York to follow his
brothers to California. Abandoning the rigorous life of a miner shortly after he arrived, Mills
purchased a stock of goods, which he transported to Sacramento and quickly sold. The profit
from this operation was so much greater than those found in the goldfields that Mills
returned to New York, found a financial partner, and bought more goods to take back to
Sacramento. After a year as a storekeeper, Mills made another trip to New York to present
his business partner with $40,000 in profits from a $5,000 initial investment—in fact, Mills
had acquired his first cache of goods with just $40 in cash.24 When Mills traveled back to
Sacramento in the winter of 1849–50, he left orders for a variety of goods to be shipped after
him, including a large safe, which became the key feature in the new Bank of D. O. Mills.
The Wells, Fargo & Co. office at the town of Iowa Hill, located near the North Fork of the American River in Placer
County, August 1855. Prospectors found gold here as early as 1849, but it was not until five years later that
miners struck rich diggings and the camp boomed. Charles T. Blake, the local agent for the famed express and
banking company founded by Henry Wells and William G. Fargo, stands in the center doorway.
California Historical Society, CHS2016_2073
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Whether as an express agent, a gold dealer, or a merchant, the route by which one became
a banker usually involved several essential steps, not necessarily in any particular order.
A would-be banker had to establish himself (there were no female Gold Rush bankers of
record) in a business of some type, demonstrating to customers that he could be trusted to
exchange currency and gold honestly and effectively, and also presenting a personal testimony that he was successful. That image has been taken for granted by historians, but for
the potential customers of the day, it represented a crucial element in convincing them to
deposit hard-earned gold or currency with a merchant.
Another critical step toward becoming a banker was to purchase a safe—the path followed
by Mills—which established the individual as a person to whom others could entrust money
with assurances of physical safety and security. Once a businessman had gained a reputation, amassed a measure of personal wealth, and acquired a safe, the final step was to construct a building. The bank building in the Old West, like the safe and the vault, has been
largely overlooked. The structure was the physical symbol of safety on which a banker’s business rested. Western bankers had used a number of innovative temporary facilities and strategies to protect money, including hiring full-time guards, placing money in boxes with
rattlesnakes, and hiding real gold in wastebaskets while substituting gold-painted rocks in
the cash drawers.25 Those, of course, did not satisfy the demands for a building and an iron
safe, and therefore an aspiring banker made it a matter of urgency to construct a facility that
not only provided physical protection of assets but also suggested to even casual observers
that it was an establishment of permanence and strength. The structure itself often contained
the most ornate furnishings and finest wood and brass, rivaled in a typical western town by
the saloons, perhaps, but by few other buildings. The preference for ornate design, rich
woods, marble, brass, and other costly materials did not reflect reckless expenditures on
meaningless trappings or extravagance. Rather, the building offered physical security, because a bank was inevitably located in the middle of town, “far enough away from the saloon
to discourage alcohol-induced midnight pilgrimages by the bar patrons, but close enough that
the next morning those same bleary-eyed (and broke) revelers could obtain more cash.”26
Inside the bank building, an interior wall might be bordered by another business, with a
stone or brick vault usually set into the wall or placed in the basement. Even if someone
breached the vault, the thief would have to penetrate the safe. Early ball-safe designs utilized
a large, hollow iron ball that held cash and valuables, and that rested on a square base, inside
which were stored important papers and deeds. The ball was too large and heavy to carry off,
and its round surface made it almost impossible to crack using the blasting powder available
at that time. Ball safes soon gave way to the larger, rectangular combination safes produced
by Hall Safe and Lock in Cincinnati, Ohio. Bankers tended to place the safe inside the vault,
which had barred windows and doors. In this manner the artistically embellished iron box
was both protected and displayed, presenting the customer a clear view of the bank’s chief
symbol of safety.
A bank building, complete with its vault and safe, represented an investment in the community of substantial proportions, costing between $8,500 and $250,000. The investment in
a building could represent as much as 50 percent of a bank’s total capital: William Ralston’s
Bank of California building constituted 12.5 percent of the bank’s initial capital, while at the
Lucas Turner & Co. Bank, managed by William Tecumseh Sherman, the three-story 1854
CALIFORNIA HISTORY
33
building that housed the bank and other office space accounted for 27 percent of total
capital.27 Placing so much of a bank’s precious capital in a building might seem odd to
modern, cost-efficient managers until we understand that the building constituted the
most important source of advertising. In an age when many customers were illiterate,
or literate but unread, the bank had to transmit the message that it was safe and secure
through a clear, public display: an imposing bank building.28
It was doubly important that a new bank have physical symbols of safety, because, in the
absence of regulation, bankers had to assure customers that they protected the customers’
funds. Perhaps in the most unnoticed event of western frontier history, these symbols of
safety worked almost to perfection. A thorough search of the records of all states west of the
Missouri–Minnesota border (not counting Texas, which was still considered “southern”)
reveals the total absence of bank robberies in early years. Though they became a staple in the
western movie, virtually no bank robberies—or, at least, no successful ones—occurred prior
to the 1920s in the West. Authors have found few incidents that even come close to qualifying: a raid on a bank in Nogales, Arizona (a border town subject to bandit incursions from
Mexico); a failed attempt by the Butch Cassidy gang on a Colorado bank, in which the
would-be thieves used nitroglycerin to threaten hostages; and a 1912 shootout in Newport
Beach. Otherwise, the outstanding reality of banking in the West was that symbols of safety
worked exceptionally well, not only as visual reassurances of security but as deterrents to
assaults on the physical capital of the banks.
Another reason the banks had to maintain an imposing physical presence in the town
stemmed from the fact that, while a single individual usually stood out as the bank’s
“founder,” in reality many early California banks, reflecting the region’s highly transient
population, were characterized by a high level of ownership instability, with partners frequently entering and leaving the businesses. Moreover, the names of California banking
companies changed as often as did the partners. Consider the banking business of
Dr. Stephen A. Wright, who in 1848 established the Miner’s Bank out of his exchange
operations. In September of the following year, he changed the name to Wright &
Company, located at Kearney and Washington in San Francisco. Less than a year later, it
was reorganized as Miner’s Exchange and Savings Bank. A similar business, Decker and
Jewett of Marysville, had started as Cunningham and Brumagin (1850), and later became
Mark Brumagin & Company (1854), Decker Brumagin & Company (1858), Decker, Jewett
& Paxton (1861), and after 1863, Decker, Jewett & Company. The final name, Decker
Jewett Bank, lasted until the bank’s closing in 1927.29
One exception to the typical career path, in which it was typically merchants, freight
agents, or gold dealers who evolved into bankers, was Thomas Wells, a newspaper publisher
(and no relation to Henry Wells of Wells Fargo) who moved to California from New England.
In August 1849, Wells opened his Specie and Exchange Office, which consisted of a simple
room, fifteen by eighteen feet, with a wooden plank counter. Nevertheless, by the end of that
year Wells had emerged as the leading banker in the city, writing to his wife that deposits
amounted to $132,000 and that he was opening two or three new accounts every day.30
By 1850, he had taken a partner (who added $50,000 in capital) and started construction
on a new “fireproof building,” which a year later he discovered not to be fireproof, at great
cost to his own health, when he stayed in the bank too long during a fire. (In the mistaken
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assessment that “fireproof” really meant fireproof, several bankers, including James King of
William, tried to sit out fires inside their supposedly flame-resistant buildings; King almost
died from smoke inhalation).31 At any rate, Wells found that the fire at his bank had wiped
out his business, for within six months his notes were protested by another company,
indicating that they were not sound. Wells could not cover the bills and placed the bank, or
what was left of it, in the hands of trustees who paid off creditors at the rate of thirty-seven
cents on the dollar.
Joining Thomas Wells in the banking business in San Francisco by late 1849 were at least
three other banks: Naglee & Sinton (later Naglee & Company); Wright, Burgoyne & Co.; and
B. Davidson. A year later, three more—D. J. Tallant; Page, Bacon & Co.; and F. Argenti &
Co.—entered into competition with the original group. Still other competitors were de facto
banks that did not adopt the title “bank.”
Whether these establishments were banks in name or in fact, the rapid emergence of
banking businesses in California in 1849 was especially noteworthy because much of what
they did was technically illegal. The delegates to the 1849 state constitutional convention
(which included only one person described as a banker) had prohibited anyone from issuing
paper notes or otherwise exercising banking privileges. If banking was prohibited, where did
all the banks come from? How did one reconcile the presence of so much gold and so many
bankers with such clear anti-banking legislation?
The California Constitutional Convention, which convened in early September 1849, met
concurrently with a group of private citizens who considered the “official” body illegal. In the
official body’s draft were several provisions related to banking, including sections 31, 33, and
36 (general incorporation and limited liability acts); section 34 (which expressly prohibited
the legislature from passing a charter for a banking association, but still held open the possibility of private “associations . . . formed under general laws for the deposit of gold and silver”); and section 35 (prohibiting the legislature from “sanctioning in any manner . . . the
issuing of bank notes”).32 California had, perhaps inadvertently, accepted the then-popular
notion of “free banking” without some of the features that made free banking especially effective. Free banking allowed anyone to open a bank without the express approval of the government, but often required bankers to assume liability for the loss of depositors’ money.
Scotland’s earlier period of free banking, for example, featured double liability for stockholders if deposits were lost.33 Far from anticipating the widespread appearance of free banking,
though, the constitutional convention, wanting to spare the state from what it saw as the evils
of paper money, thought that the mountain of gold on which the state rested would by itself
suffice to eliminate banknotes. That did not prevent one member of the drafting committee
on banking and incorporation from arguing in his finest Jacksonian rhetoric for providing
“the strongest constitutional safeguards against the vicissitudes . . . of this monster serpent,
paper money.”34 One committee member, J. M. Jones, tried to eliminate the general incorporation laws and to expressly prohibit banks, including any “associations” that accepted gold
and issued receipts that might circulate as money. But others quickly countered that merchants demanded a circulating medium, and that failing to permit free enterprise in the
form of banks could well jeopardize the ratification of the constitution by the public. As a result, the convention gave the legislature the power to grant charters for banking, but prohibited such banks from issuing paper money—and a second, separate passage reiterated the
CALIFORNIA HISTORY
35
ban on paper money and accepted the general incorporation laws with limited liability. Then,
as if to confuse completely the convention’s intentions, the first legislature established a rate
of interest at no more than 10 percent per year on loans, even as it prohibited any “evidences
of debt” (outlawing IOUs). In reality, the constitution and the legislature’s stipulations
regarding paper money and banks already had been rendered obsolete and irrelevant by the
market, which daily saw hundreds of miners exchange gold for drafts—a reality to which the
legislatures finally acceded when laws were passed taxing banks on the gold dust brought in
or the exchange sold, underscoring the significance of money creation as a central element of
early banking.
A threat far more dangerous to California’s early banks than contradictory laws was the
decline in the mines’ gold production after 1852. Miners needed more expensive equipment
to reach the gold, as the simple pans and picks of a few years earlier no longer sufficed. From
1854 to 1855, banks in San Francisco experienced several panics, particularly when Page,
Bacon & Co. failed, triggering a disastrous run. The main office of Page & Bacon in Saint
Louis had heavy losses on a midwestern railroad loan, but raised sufficient gold in California
to keep the office open, shipping back to Saint Louis by steamer. While the gold was en route,
word reached San Francisco that the Saint Louis branch of Page & Bacon had folded, and the
subsequent run shut down the company, as well as other San Francisco banks, including
Adams & Co. and Wright’s Miner’s Exchange Bank. Eventually, even most offices of Wells
Fargo were closed. The Daily Herald reported that “No day so gloomy has been witnessed in
San Francisco since that disastrous fire of the 4th of May, 1851. Every bank was said to have
suspended, and rumors of mercantile failures—most of them false, we are glad to say—
came thick and heavy in the afternoon.”35 Another panic occurred when prominent San
Francisco citizen Henry Meiggs, who had supplied much of the city’s lumber and built
Meiggs Wharf, unexpectedly left town owing $800,000 secured with forged city warrants.36
Meiggs’s sudden departure could be traced to the constant hounding he received on his
debts by William Tecumseh Sherman, who would go on to become the famous Civil War
general. Sherman had first come to California as a lieutenant during the war with Mexico.
His nearly three years’ experience was deemed adequate to make him a valuable representative of Lucas Turner & Co. of Saint Louis when that company opened a bank in San Francisco
in 1853. Henry Turner opened the branch early in 1853 by renting a suitable space for $600 a
month and hiring two employees. Sherman arrived to assume control in late April after a
two-month trip marked by a pair of shipwrecks on the same day: “Not a good beginning
for a new peaceful career,” he wrote.37 Finding the California economy still booming and
business prospects good, Sherman returned home, resigned his U.S. Army commission,
collected his family, and journeyed back to California to stay, at least until 1860, as he had
agreed. As a manager, Sherman proved as relentless as he would later be to the Confederates. A reading of Dwight Clarke’s edited collection of letters from Sherman shows that the
future general mercilessly pressured Meiggs for payments in the period prior to the latter’s
hasty departure.38
That weeding out of banks caused by repeated panics merely opened the door for other
ambitious and talented men, including William Chapman Ralston, who had abandoned his
steamboating career to become a forty-niner.39 While crossing the Isthmus of Panama,
Ralston met some old steamboating friends, Captain Cornelius Kingston (C. K.) Garrison
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and Ralph Fretz, who wanted him to handle the Panama branch of a travel and freight business they had in San Francisco. After dealing with malarial climate, unprepared travelers,
and even a major shipwreck, Ralston finally settled in San Francisco in 1854 and opened his
own steamboat business, earning profits from shipping passengers and goods and amassing
enough in January 1856 to open a bank called Garrison, Morgan, Fretz & Ralston. Garrison
and Charles Morgan withdrew from the business in 1857. Now renamed Fretz & Ralston, the
firm soon merged with dry goods merchants Eugene Kelly and Joseph Donohoe for additional capital.
During this period, Ralston invested in a variety of local industries: foundries, railroads,
and dry goods firms. He also expanded to the north, allying himself with the Ladd and Tilton
Bank of Portland, which brought a stern warning from Kelly. To Ralston, the reprimand constituted an opportunity to open his own bank, and he immediately rounded up some of the
most prominent local citizens, including D. O. Mills. Ralston wanted his new bank to stand
out as the most important in the state, and accordingly he named it “The Bank of California”
(with “The” always capitalized in the title).40 Mills became the new president, bringing to the
position his reputation, while Ralston took the daily management job of cashier, deciding the
investments and loans that the bank would make. When the bank opened on July 1, 1864, its
charter specifically listed its business as banking, the first allowed under an 1862 revision of
the state’s constitution. The Bank of California thus became the first incorporated bank in
California, drawing its customers and investment profits primarily from the increasingly
successful Comstock silver mines.41
Silver mining offered tantalizing opportunities for wealth. The silver veins dove deep into
the mountains and became accessible only by digging expensive shafts, which required extensive capital. Silver miners might easily discover a vein of the blackened metal near the surface, but the pursuit of silver veins required deep mines with reinforced tunnels, ore cars and
rails, and pumps and blowers to keep the miners alive, as well as elaborate mills and separators to process the ore. A lively market for mine stocks developed as people realized that capital invested in a mine might not pay off for years or make one rich in a day. Silver mining
launched the Pacific Coast Stock Exchange. It also stimulated the production of timber to
reinforce deep mines, and the construction of railroads to transport timber from the Sierra
Nevada to the desert area of Virginia City. Of course, mining constituted a volatile business,
with the constant threat of cave-ins, floods, or fires.
It did not take Ralston long to appreciate the close relationship his bank had with the fortunes of the mines: when a miner’s pick hit a subterranean water vein and flooded the shafts,
mining stocks plummeted and Ralston’s correspondent bank in Virginia City failed. That episode served to convince Ralston that he needed his bank to have its own branch in Virginia
City, prompting him on the recommendation of a friend to hire William Sharon. When
Sharon arrived in Virginia City, he dove into the thorny problem of the long-term profitability
of the Comstock Lode, visiting chilly caverns and hot, sulfurous shafts. Floods proved the
most frequent, and vexing, problem. Yet all that was required was some way to pump out
water. After a particularly disastrous flood swamped one mine, stopping production, Ralston,
with typical energy and optimism, installed a 50-horsepower pump—the biggest yet created.
But the pump proved so ineffective against the rising lake inside the mines that within eight
months the water had engulfed the outmatched machine. It was typical, however, of Ralston
CALIFORNIA HISTORY
37
to order the Vulcan Foundry, which he helped support with his investments, to construct a
120-horsepower pump.
While Ralston struggled with the water problem in the mines, he grew concerned that his
bank had made far too many—and too generous—loans. In the process, though, the bank
had helped to start woolen mills, a sugar refinery, an insurance company, a railroad equipment manufacturing company, a winery, lumber mills, gas and water companies, and the
Sacramento Valley Railroad, as well as invested in other existing projects, such as the Vulcan
Foundry. In these early days, banks not only loaned to businesses but also owned substantial
portions of a number of enterprises. Of course, with each new investment, Ralston became
either an official or de facto member of the board, or the manager of the business. Ultimately, so many businesses owed at least some part of their existence to Ralston’s Bank of
California that Ralston biographer George Lyman called him the “Atlas of the Pacific,” for on
his shoulders “rested the financial structure of the Pacific Coast.”42
By establishing a branch of his bank in Virginia City, Ralston had presented California
with a gift for posterity. Branch banking existed in many parts of the world, including the
antebellum American South.43 Other California bankers had established small branches, but
the practice was certainly not universal, nor were the benefits and efficiencies of branching
well publicized outside the South. But Ralston realized that San Francisco’s economy
differed somewhat from Virginia City’s, and that the more flexibility his bank had to shift resources back and forth, the more likely it could withstand crises, which were sure to come
given the vicissitudes of mining. In Ralston’s first big gamble with mining investments, it
looked as though even the more resilient branch structure might not save him: he received
constant pleas from Sharon for more cash, to the tune of more than $650,000, to keep the
Comstock drills going. Silver existed in abundance, Sharon reassured Ralston, and “Adas”
went beyond what traditional bankers would have seen as their obligations in financing all
of the mining ventures. Ralston’s gamble paid off in 1865, when the Kentuck mine produced
silver. Within a year it yielded $2 million of the metal, making The Bank of California flush
with more than $1 million in profits.
Ralston plowed much of the profit back into the bank, building the most elaborate
financial headquarters west of the Mississippi, with tall arched windows and nineteenfoot-high ceilings capped by ornamental vases. The bank’s interior sported polished dark
wood counters, and though it lacked the traditional tellers’ cages, the bank advertised its
four massive vaults, each formed of a three-inch-thick wall of stone. Enclosed in green
glass were inner offices where Ralston and the cashier worked. Contrary to the layout of
most banking houses of the day, there was no “ladies banking room.” The bolder sort of
women who lived in California deposited their funds with the same dark-suited tellers
who served the men. To attract Chinese customers, Ralston employed Chinese tellers,
whom he exempted from his dress codes by allowing them to wear dark silk robes and
their customary long braids.
Beyond the bank, Ralston’s influence ran deep. He built the huge, unrivaled Palace Hotel,
and, to internalize the costs of construction, he purchased foundries, furniture businesses,
and other supporting enterprises. He lent money to the Japanese government to buy railroad
engines from California manufacturers. In 1874, he created a new silver coin, called the
“trade dollar,” to encourage Asian suppliers to hold money earned in trade.
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By August 1875, however, Ralston’s overextended empire caught up with him. That
year, a nationwide financial panic reached California, sparking runs that closed The Bank
of California. The day the bank closed, Ralston, perhaps facing the impending bankruptcy of his personal estate, went for his regular swim in San Francisco Bay. He was
observed in a brief struggle but died before he could be brought ashore. The “Atlas of the
Pacific” had put down the globe for good, but the bank managed to reopen in October of
the same year.
Prior to his demise, however, Ralston also demonstrated another characteristic of
early California banking, that of domestic capital investment that eventually became
capital export. Far from the claims of some contemporaries and historians that eastern
interests used the West as a “colony,” the California banking experience suggests just the
opposite—California’s banks, built by men with little imported capital, prospered to the
extent that they reinvested their fortunes in the state’s economy. The “Irish Four” of John
Mackay, James Fair, James Flood, and William O’Brien, who opened the Bank of Nevada
in San Francisco in the early 1870s, had started as saloon owners and miners. Although
they all became rich from investments in the Comstock Lode, Flood could not hang onto
his money, going broke for the first time in the 1850s and having to work as a carpenter to
pay his debts. Flood rebuilt his empire, but again lost it all in a wheat speculation with
Mackay that cost the partners as much as $12 million. But the mere fact that a pair of
former saloon owners in California could become major investors in the wheat market
provides some evidence as to their wealth.
The diminished fortunes of Mackay and Flood after the 1870s paved the way for the arrival
in San Francisco of another early California financial legend, Isaias Hellman, who had come
to Los Angeles in 1859 from Bavaria.44 The dry goods store he started featured a Tilden &
McFarland safe, allowing him to diversify into banking activities as early as 1865. His was not
the first incorporated bank in Los Angeles, an honor that belonged to James A. Hayward and
John G. Downey, who started their bank in 1868. But Hellman quickly developed a reputation as one of the most solid businessmen in the region, and in 1871 he merged his bank with
Downey’s, bringing in twenty-three other local business and agricultural leaders to form the
Farmers & Merchants Bank of Los Angeles. In 1876, Hellman replaced Downey as president
after a panic nearly closed the institution. The Farmers & Merchants Bank prospered, and
Hellman’s business interests extended throughout the state. When in 1891 directors were
looking for a new president to take over San Francisco’s Nevada National Bank, which the
Mackay-Flood losses had weakened, Hellman left Los Angeles to accept the position. He led
the bank’s return to prominence and its merger with Wells Fargo Bank and Union Trust
Company. Like his contemporaries, Hellman invested heavily in California, organizing
railroads and becoming a local philanthropist.
In many ways, the ascension of Hellman and the passing of Ralston and the Irish Four
marked the end of the frontier period in California’s banking history, essentially closing
the frenzy begun with the Gold Rush. The early merchant-banker, who relied on safes,
vaults, personal reputation, and customer loyalty to maintain business, gave way to a
new, professional class of managers. In addition, the regulation of banks—while still
largely in the hands of the bankers themselves—came to be viewed as a public policy
issue, at least to some degree.
CALIFORNIA HISTORY
39
The 1860s and 1870s brought depression and disruption to the California economy.
Completion of the transcontinental railroad in 1869 caused unemployed railroad workers to
descend on the cities. Speculation drove up land prices dramatically, and droughts in southern California thinned the cattle herds. Ranchers who had borrowed against their land to expand when gold and silver made the state prosperous found themselves overextended and
often lost their land to lenders45 Sympathy for the economically distressed, combined with
the traditional antibanking sentiment, led legislators to further regulate banks. The resulting
state Banking Act of 1878 created a Board of Bank Commissioners and required all banks to
pay a license fee, to file reports, and to submit to examinations twice a year. Only Indiana,
Iowa, and four New England states preceded California in requiring examinations.46
Civil War measures by the Union government also centralized and nationalized control
over American banking far more than ever before. After 1864, notes issued by private,
state-chartered banks were taxed nearly out of existence. Money from the newly created
national banks circulated, replacing private and state banknotes. While still only connected
in the loosest of associations through the federal government and supervised liberally by the
Comptroller of the Currency, the national banks nevertheless indicated a new attitude toward
bank regulation. With the new national charters, however, came increased examination and
supervision by the federal government. A national banker could not merely publish the
balance sheets or income statements, but rather had to submit to routine inspections, after
which the government examiner would declare the bank “safe and sound” (assuming, of
course, that it passed). When California began examining the state-chartered banks in
1878, of the first five banks examined, examiners closed the first and passed the second. The
next three closed before the inspectors arrived.47
The growing but gradual changes in the supervision of banks by state and federal agencies
often are viewed by historians as reforms resulting from public outcry. In reality, increased
regulation often shifted the public’s perceptions of a bank’s stability from visual and material
symbols, such as the building or the banker’s personal wealth, to more “professional” and
“expert” endorsements that perhaps in the long run were of less value. Involvement by the
federal government, through the national banking system, also began the relentless transfer
of local control over financial institutions to the central government.
Control demanded that as many banks as possible be brought into the national bank system, and federal authorities assumed that the privilege of issuing national banknotes—and
the corollary taxing of private or state banknotes—would do the trick. California banks, however, developed a much different commercial emphasis than many state banks in other regions, where the issuing of notes constituted a major element of the institution’s business.
In California, with its abundance of gold, the banks concentrated on loans and investments,
not on issuing notes, and therefore when the national banking system was established, its
most valuable prize for a bank joining the system—the authority to issue tax-free and easily
recognized national banknotes—enticed very few California banks to join.
Californians demanded coin in almost all daily transactions, and few trusted the Union
government’s supplemental Civil War paper currency, known as “greenbacks” (which, unlike national banknotes, were issued directly by the government). When the California Supreme Court upheld a law allowing contracts to specify the type of money acceptable in
payment, it essentially defied the U.S. government’s contention that greenbacks were “legal
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tender.”48 Most lenders demanded gold in payment, leaving the U.S. customs collectors as
almost the only people in the state willing to accept greenbacks. Congress realized that as
long as gold circulated as freely as it did, the national banking system could not make any
inroads in California. Accordingly, in 1870, Congress amended the National Bank Act to provide for the creation of national gold banks, with new notes payable in gold coin. Congress
required that the banks hold a 25 percent reserve in specie—substantially higher than most
antebellum private banks would have held—and limited the total amount of outstanding
gold notes to $45 million.49 Ten gold banks were organized in California, and when all national banknotes became redeemable in specie in 1879, all ten switched to standard national
charters.50
Even though the “gold” period in California’s banking history did not end until the demise of the gold banks, the Gold Rush era closed with the end of the Civil War, if not sooner.
California banks passed from the frontier stage, characterized by individual responsibility for
bank solvency and safety, to the managerial stage, in which trained professionals directed the
activities of the banks under the oversight of state, then later state and federal, authorities.
Yet the conditions that had given birth to Ralston, Hellman, the Irish Four, and D. O. Mills
still shaped the state’s financial institutions. Branch banking was tailor made for a state as
large as California, with its diverse economy.
By the end of the frontier era in California’s banking history, several enduring features
had been established. First, despite Americans’ traditional suspicions of banks, the mere
presence of banks from the earliest times led Californians to a certain comfort level with
the institutions. Despite concerns by legislators, and in the twentieth century attacks by
radical groups or “public interest” spokesmen, most Californians accepted banking as
a necessary and useful part of daily economic life. Except for the early constitutional
debates, banks generally escaped the harsh criticism or outright ostracism frequented on
institutions in Wisconsin, Arkansas, Mississippi, or Iowa, where at various times the
practice of banking or the establishment of a bank was prohibited by law or all but eliminated. That acceptance, in turn, meant that Californians—from farmers to millers to
shippers to innkeepers—did not hesitate to seek new capital to expand agriculture, commerce, trade, and industry.
Second, the symbols of safety worked as planned, suggesting that consumers were more
capable of judging the vitality of their financial institutions than many advocates of regulation have thought. Certainly, many of the early banks eventually failed. But that neither dissuaded consumers from using banks nor deterred other entrepreneurs from starting new
ones. Moreover, of those banks that failed, few collapsed because of the actions of a villain
who profited at public expense. In almost all cases, the founder or owner sacrificed everything to keep the institution alive and to meet obligations, even to the point that individual
fortunes were exhausted for the sake of the bank.
That point underscores a third characteristic of early California banking, which was the
persistent use of coin as currency. While popular for a time, the use of gold dust in daily
transactions proved neither practical nor desirable, and coin, and soon paper money, quickly
found their way into circulation. Paper money, however, had to be redeemable in gold.
Californians hesitated to accept greenbacks, not because they were paper money, but because
they were unbacked paper money from the government. Evidence from other sections of the
CALIFORNIA HISTORY
41
country suggests that the “free bank” era of private note issue was a success, and a substantially revised interpretation of that period, which has been emerging for over a decade, now
appears to be the accepted position among economic historians. Far from demonstrating
that paper money, and privately created paper money at that, would not work, experience in
California showed that consumers will select a variety of exchange mechanisms as these suit
their needs, and that the least desirable of all money was that issued by the government as
“legal tender.”
Finally, California’s adoption of branch banking, while not prevalent in the early frontier
era, proved a critical step in the long-term economic vitality of the state. It was the perfect system for a large, economically diverse state (while, in contrast, branching proved less effective
in states with more homogenous economies, such as Nevada or South Carolina in the
1920s).51 The state, sometimes through deliberate action and occasionally by accident, developed a thriving, diverse, flexible banking structure that by the 1980s saw the temporary ascension of a California bank, Bank of America, as the largest bank in the world. That bank
was then only one of many large competitors in the state, suggesting that the attitudes and
structures generated by, and during, the Gold Rush proved exceptionally durable and flexible
over the subsequent century and a half.
NOTES
1. The most recent and thorough survey of these debates appears in Larry Schweikart, “U.S. Commercial Banking:
A Historiographical Survey,” Business History Review 65 (Autumn 1991): 606–61, as well as in his introduction
to The Encyclopedia of American Business History and Biography: Banking and Finance to 1915 (New York: Facts
on File and Bruccoli Clark Layman, 1991). Also see Benjamin J. Klebaner, American Commercial Banking: A
History (Boston: Twayne, 1990), and Larry Schweikart, Banking in the American South from the Age of Jackson
to Reconstruction (Baton Rouge: Louisiana State University Press, 1987).
2. See Timothy Hubbard and Lewis Davids, Banking in Midamerica (Washington, DC: Public Affairs Press, 1969),
and R. S. Cole, “Early History of Money and Banking in Missouri” (M.A. thesis, University of Missouri, 1906).
3. For example, the experience of the antebellum North Carolina banks, in Schweikart, Banking in the American
South, passim.
4. Earling A. Erickson, “Money and Banking in a ‘Bankless’ State: Iowa, 1846–1857,” Business History Review
43 (Summer 1969): 171–91; Larry Schweikart, “Arkansas Antebellum Banks,” Southern Studies 26 (Fall 1987):
188–201; Joseph M. Grant and Lawrence L. Crum, The Development of State-Chartered Banking in Texas: For
Predecessor Systems until 1970 (Austin: University of Texas, Bureau of Business Research, 1978).
5. Robert Glass Cleland, From Wilderness to Empire: A History of California, 1542–1900 (New York: Knopf, 1944),
240.
6. Lynne Pierson Doti and Larry Schweikart, California Bankers, 1848–1995 (New York: Guinn, 1994), 9.
7. Richard Henry Dana, Two Years before the Mast (New York: A. L. Burt, 1840), passim.
8. Lewis E. Davids, “Fur Money and Banking in the West,” Journal of the West (April 1984): 7–10.
9. Dana, Two Years before the Mast, 9.
10. Ira R. Cross, Financing an Empire: History of Banking in California, 4 vols. (Chicago: S. J. Clarke, 1927), 1:22.
11. William Heath Davis, Seventy-five Years in California, ed. Harold A. Small, 3rd ed. (San Francisco: John Howell
Books, 1967).
12. Lynne Pierson Doti and Larry Schweikart, Banking in the American West: From the Gold Rush to Deregulation
(Norman: University of Oklahoma Press, 1991), 10.
13. Thomas Senior Berry, Early California: Gold, Prices, Trade (Virginia: The Bostwick Press, 1984), 78.
14. Robert J. C. Handler, “Integrity amid Tumult: Wells, Fargo & Co.’s Gold Rush Banking,” California History 70
(Fall 1991), 261. For the growth of San Francisco, in general, see Roger W. Lotchin, San Francisco, 1846–1856:
From Hamlet to City (1973; repr., Lincoln: University of Nebraska Press, 1979), as well as J. S. Holliday, The
World Rushed In: The California Gold Rush Experience (New York: Simon & Schuster, 1981), 316–17.
15. See Cross, Financing an Empire, 1:125–27.
16. The Smithsonian Museum of American History displays the Polk Collection of California’s privately minted
coins from many of those businesses.
17. Cross, Financing an Empire, 44.
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18. See Fred R. Marckhoff, “The Development of Currency and Banking in California,” The Coin Collectors’ Journal
15 (May–June 1948), and Benjamin Cooper Wright, Banking in California, 1849–1910 (San Francisco:
H. S. Crocker, 1910), 15.
19. Cross, Financing an Empire, 1:41.
20. Ibid., 1:90.
21. Wells Fargo History Department, “Historical Highlights,” pamphlet published by Wells Fargo Bank, 1982, 5.
22. Ibid.
23. W. Turrentine Jackson, “Wells Fargo: Symbol of the Wild West?” Western Historical Quarterly 3 (April 1972):
179–96. Also see his many articles on Wells Fargo, including “A New Look at Wells Fargo, Stagecoaches, and
the Pony Express,” California Historical Society Quarterly 45 (1966): 291–324; “Stages, Mails and Express in
Southern California: The Role of Wells, Fargo & Co. in the Pre–Railroad Era,” California Historical Society
Quarterly 56 (1974): 233–72; “Wells Fargo Staging over the Sierras,” California Historical Society Quarterly
44 (1970): 99–133; and “Wells Fargo’s Pony Expresses,” Journal of the West 11 (1972): 412–17.
24. Lynne Pierson Doti, “D. O. Mills,” in Schweikart, Encyclopedia of American Business History, 316–20.
25. These and other unorthodox methods of protecting money and valuables are discussed in Pierson Doti and
Schweikart, Banking in the American West, 1–37, and in Larry Schweikart, A History of Banking in Arizona
(Tucson: University of Arizona Press, 1982), chaps. 1–2, passim.
26. Pierson Doti and Schweikart, Banking in the American West, 39.
27. Neill Compton Wilson, 400 California Street: The Story of the Bank of California, National Association, and Its First
100 Years in the Financial Development of the Pacific Coast (San Francisco: Bank of California, 1964), 26, 29;
Dwight L. Clarke, William Tecumseh Sherman: Gold Rush Banker (San Francisco: California Historical Society,
1969), 18. Sherman’s building, unlike his business, survives today.
28. A good discussion of bank architecture appears in Christopher Nelson, “Bank Architecture in the West,”
Journal of the West 23 (April 1984): 77–87. See also “Bank Architecture in New York,” Bankers Magazine,
February 1855, for an appreciation of how well in tune with recent developments on the subject California
bankers were, and Philip Sawyer, “The Planning of Bank Buildings,” The Architectural Review 12 (1905): 24–31,
for the rationale behind the floor layout of the banks.
29. These changes are detailed in Cross, Financing an Empire, 1:86–89.
30. Ibid., 1:52.
31. Ibid., 1:58–61. Also see Pierson Doti and Schweikart, Banking in the American West, 39.
32. J. Ross Browne, “Report on the Debates of the Convention of California on the Formation of the Constitution in
September and October, 1849” (Washington, DC, 1850), 108–136. Also see David Alan Johnson, Founding the
Far West: California, Oregon and Nevada, 1840–1890 (Berkeley: University of California Press, 1992), 122–25.
33. By that time, the evidence on free banking in Scotland was abundant, but the experiments in the United States
were still ongoing. See Lawrence H. White, Free Banking in Britain: Theory, Experience, and Debate, 1800–1845
(New York: Cambridge University Press, 1984); “Scottish Banking and the Legal Restrictions Theory: A Closer
Look,” Journal of Money, Credit and Banking 22 (November 1990): 526–36, and, with George Selgin, “The
Evolution of a Free Banking System,” Economic Inquiry 25 (July 1987): 439–58; as well as Donald R. Wells and
L. S. Scruggs, “Historical Insights into the Deregulation of Banking,” CATO Journal 5 (Winter 1986): 899–910.
Several states used general incorporation laws to establish “free banks” that had limited liability but that relied
on bond deposit with the secretary of state to ensure that noteholders were reimbursed if an unscrupulous
owner left town with the bank’s capital. Several articles by Arthur J. Rolnick and Warren Weber show that the
culprit in most free bank failures was faulty drafting of the laws that did not specify market value of bonds, only
par value, making it possible for an unscrupulous owner to take advantage of plunges in the prices of bonds that
the bank had on reserve with the secretary of state. See their “Banking Instability and Regulation in the U.S.
Free Banking Era,” Federal Reserve Bank of Minneapolis Quarterly Review (Summer 1985): 2–9; “Free Banking,
Wildcat Banking, and Shinplasters,” Federal Reserve Bank of Minneapolis Quarterly Review (Fall 1982): 10–19;
“New Evidence on the Free Banking Era,” American Economic Review (Fall 1981): 1–17; “Inherent Instability in
Banking; the Free Bank Experience,” CATO Journal 5 (December 1983): 1080–91; “The Causes of Free Bank
Failures,” Journal of Monetary Economics 14 (November 1984): 267–91; and “Explaining the Demand for Free
Bank Notes,” Journal of Monetary Economics 21 (January 1988): 47–71. Others have challenged elements of their
hypothesis, but the structure still remains intact. See Kenneth Ng, “Free Banking Laws and Barriers to Entry in
Banking, 1838–1860,” Journal of Economic History 48 (December 1988): 877–89; Hugh Rockoff, “Lessons from
the American Experience with Free Banking” (Cambridge, MA: National Bureau of Economic Research
Working Paper No. 9, Series on Historical Factors in Long–Run Growth, 1989); Andrew Economopolous,
“Free Bank Failures in New York and Wisconsin: A Portfolio Analysis,” Explorations in Economic History
27 (October 1990): 421–41, “The Free Banking Period: A Period of Deregulation?” New York Economic Review
17 (1987): 24–31, “Illinois Free Banking Experience,” Journal of Money, Credit and Banking 20 (May 1988):
249–64, and his “The Impact of Reserve Requirements on Free Bank Failures,” Atlantic Economic Journal
14 (December 1986): 76–84.
34. Quoted in Cross, Financing an Empire, 101.
CALIFORNIA HISTORY
43
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
44
Ibid., 183.
Ibid., 177.
Clarke, William Tecumseh Sherman, 17.
Ibid., 69–70.
Cecil G. Tilton, William Chapman Ralston: Courageous Builder (Boston: Christopher Publishing House, 1935);
David Lavender, Nothing Seemed Impossible: William C. Ralston and Early San Francisco (Palo Alto, CA: American
West Publishing Co., 1975); and Lynne Pierson Doti, “William Chapman Ralston,” in Schweikart, Encyclopedia
of American Business History, 398–408.
Pierson Doti, “D. O. Mills,” 316–20.
James Joseph Hunter, Partners in Progress, 1864–1950: A Brief History of the Bank of California NA. & of the Region
It Has Served for 85 Years (New York: Newcomen Society in North America, 1950).
George D. Lyman, Ralston’s Ring: California Plunders the Comstock Lode (New York: Scribner’s, 1937), 56.
For material on the southern branch banking system, and branching in general, see Schweikart, Banking in the
American South; Charles Calomiris and Larry Schweikart, “The Panic of 1857: Origins, Transmission, and
Containment,” Journal of Economic History 51 (December 1991): 807–834, and their “Was the South Backward?
North–South Differences in Antebellum Banking during Normalcy and Crisis” (Federal Reserve Bank of
Chicago Working Paper, 1988); John Martin Chapman and Ray B. Westerfield, Branch Banking: Its Historical
and Theoretical Position in America and Abroad (New York: Harper and Row, 1942); Gary C. Gilbert and William
Longbrake, “The Effects of Branching by Financial Institutions on Competition, Productive Efficiency, and
Stability: An Examination of the Evidence,” Journal Of Bank Research 4 (Winter 1974): 298–307; Paul M.
Horwitz and Bernard Schull, “The Impact of Branch Banking on Bank Performance,” The National Banking
Review 11 (December 1974): 143–89; Shirley Donald Southworth, Branch Banking in the United States (New York:
McGraw-Hill, 1928); and Eugene N. White, The Regulation and Reform of the American Banking System, 1900–
1929 (Princeton, NJ: Princeton University Press, 1983).
Material on Hellman appears in Robert Cleland and Frank Putnam, Isaias Hellman and the Farmers and
Merchant’s Bank (San Marino, CA: Huntington Library, 1965), and Michael Konig, “Isaias W. Hellman,” in
Schweikart, Encyclopedia of American Business History, 249–60.
Walton Bean, California: An Interpretive History (New York: McGraw-Hill, 1968), 205.
Lynne Pierson Doti, Banking in an Unregulated Environment: California, 1878–1905 (New York: Garland, 1995),
35.
Ibid.
See Lavender, Nothing Seemed Impossible, 170.
Wright, Banking in California, 51.
For a social-choice interpretation of the gold banks, see Robert L. Greenfield and Hugh Rockoff, “Yellowbacks
Out West and Greenbacks Back East: Social-Choice Dimensions of Monetary Reform,” Southern Economic
Journal 62 (April 1996): 902–15.
For an assessment of the relative ineffectiveness of branching in some other states during the 1920s, see
Charles Calomiris, “Is Deposit Insurance Necessary? A Historical Perspective,” Journal of Economic History 50
(June 1990): 283–295, and his “Deposit Insurance: Lessons from the Record,” Economic Perspectives (May–June
1989): 10–30. Also see Larry Schweikart, “A New Perspective on George Wingfield and Nevada Banking, 1920–
1933,” Nevada Historical Quarterly 35 (Winter 1992): 162–76.
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